China's yuan holds steady, investors cautious after PBOC moves

[SHANGHAI] China's yuan held steady against the dollar on Thursday, amid concerns authorities are becoming less tolerant about the currency's recent gains and as a slew of central bank decisions elsewhere kept investors cautious.

The latest measures by the People's Bank of China, including purchases of foreign exchange from banks and more quotas for outbound investments, suggest authorities have grown less comfortable with the yuan's strength and attempted to slow its rapid rise.

Prior to market opening, the PBOC set the midpoint rate at a one-week high of 6.3637 per dollar, 79 pips, or 0.12 per cent, firmer than the previous fix of 6.3716.

But the official midpoint has been persistently softer than market projections since mid-November, traders said, with Thursday's fixing 12 pips weaker than Reuters' estimate of 6.3625.

In the spot market, the onshore yuan opened at 6.3656 per dollar and was changing hands at 6.3672 at midday, 8 pips firmer than the previous late session close.

The spot yuan swung in a very tight range of less than 50 pips on Thursday morning.

Some traders attributed the cautious mood to the PBOC's recent moves and note the 6.35 per dollar level could be the ceiling for the currency for now.

Continued one-way moves may prompt authorities to roll out more measures to curb yuan rises, they say.

"We think the PBOC may introduce other policies, such as re-incorporating counter-cyclical factors, in the central parity pricing of the CNY," analysts at CICC said in a note.

Still, some investment banks maintain their bullish bets for the Chinese currency.

"USD/CNY briefly hit our year-end target of 6.35; we expect it to remain rangebound in the very near term, but think it can ultimately grind lower on strong fundamentals in coming months,"analysts at Goldman Sachs said in a note.

Separately, market participants anxiously await outcomes from policy meetings including the European Central Bank and the Bank of England, while domestic investors largely took the Federal Reserve's hawkish move overnight in stride.

The Fed said on Wednesday it would end its pandemic-era bond purchases in March and pave the way for three quarter-percentage-point interest rate hikes by the end of 2022 as the economy nears full employment.

"The yield gap between China and the United States will shrink further, while positive factors for the yuan including strong exports are likely to fade," said Marco Sun, chief financial markets analyst at MUFG Bank, maintaining his expectations of some weakness in the yuan in 2022.

By midday, the broad dollar index rose to 96.411 from the previous close of 96.379, while the offshore yuan was trading at 6.3738 per dollar.

REUTERS